What changed
Previously, SFBs could only become Authorised Dealer Category-II for clients' forex needs. Now, after two years of AD Category-II operations, they can upgrade to AD Category-I, enabling broader forex business. Eligibility norms include minimum net worth, CRAR, NPA limits, profitability, and no CRR/SLR defaults.
What it means for you
SFBs can now offer a wider range of foreign exchange services directly, reducing reliance on other banks. This enhances their competitiveness and customer service in forex transactions. Banks must ensure compliance with stringent eligibility criteria before applying.
What you must do
- Review your bank's AD Category-II tenure and ensure it meets the two-year requirement.
- Check eligibility: net worth ≥₹500 crore, CRAR ≥15%, net NPAs ≤6% for last four quarters, profit in last two years, no CRR/SLR defaults.
- Prepare Board resolution and banking license copy for application to RBI's Foreign Exchange Department.
- Strengthen internal control systems to address any regulatory concerns before applying.
Who it affects
Small Finance Banks (SFBs), Foreign Exchange Departments of SFBs, Compliance teams of SFBs, Customers of SFBs needing forex services
What is the key eligibility for an SFB to get AD Category-I license?
The SFB must be scheduled, have completed at least two years as AD Category-II, net worth of ₹500 crore, CRAR not less than 15%, net NPAs ≤6% for four quarters, profit in preceding two years, and no CRR/SLR defaults.
Where should SFBs apply for the AD Category-I license?
Applications with supporting documents must be sent to the Foreign Exchange Department, Central Office, Reserve Bank of India.
Does this change affect existing AD Category-II operations?
No, the other terms and conditions of the Licensing Guidelines remain unchanged. SFBs can continue AD Category-II operations while applying for Category-I.